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SEBI examining ESG aspects of ratings releases by credit rating agencies

Our Bureau | | Updated on: Dec 04, 2021
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As on October 31, 2021, there were 11 mutual fund schemes in India having ESG theme

SEBI is examining the disclosure of Environmental, Social, and Governance (ESG) related aspects in the rating press release by credit rating agencies.

The market regulator is also in the process of stipulating disclosures specific to ESG mutual fund schemes.

"The introduction of Business Responsibility and Sustainability Report (BRSR) and launch of ESG Mutual Fund schemes have generated interest in ESG Ratings as a way for ESG disclosures by listed issuers to aid investors meaningfully integrate ESG into their investment decisions. In this backdrop, SEBI is examining the disclosure of ESG related aspects in the rating press release by Credit Rating Agencies," Ajay Tyagi, Chairman, SEBI said at the inauguration of Arun Duggal ESG Centre for Research and Innovation, IIM Ahmedabad.

In the recent years, increasing investor demand for companies to demonstrate high ethical and moral standards has compelled managers of private capital to identify ESG compliant startups to form a significant part of their portfolio. As a result, ESG ratings have become equally important for unlisted companies.

From an investment standpoint, ESG funds are rapidly expanding in the Indian Mutual Fund Industry. Asset Management Companies (AMCs) have been launching equity schemes in the ESG space under thematic category.

The AMCs are also launching Exchange Traded Funds (ETFs) and ETF Fund of Funds in ESG space. As on October 31, 2021, there were 11 mutual fund schemes in India having ESG as their theme with assets under management of over Rs 13,000 crore, Tyagi said.

These schemes have disclosures in their Scheme Information Documents in line with the other scheme categories, such as investment objective, asset allocation, investment strategy, investment restrictions, etc. and subsequent disclosures.

"However, these disclosures often do not bring out clearly all aspects related to ESG investing including investment strategy, usage of proprietary / third-party scoring in investment decision-making, monitoring of ESG investments, etc. SEBI is in the process of stipulating disclosures specific to ESG Schemes," Tyagi said.

Published on December 04, 2021

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